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Last Quarter’s Growth Is Revised Down Sharply

A corn crop being harvested last month near Coy, Ark. Much of the downward revision to the second-quarter growth figures was because of the effects of the nation’s worst drought in 50 years.Credit
Danny Johnston/Associated Press

WASHINGTON — The Commerce Department said Thursday that the United States economy grew at an annual pace of just 1.3 percent in the second quarter of the year, showing that the recovery came close to stalling in the spring.

The revision was down from the 1.7 percent rate the government reported in August. The economy grew at a 2 percent pace in the first quarter of the year and 3 percent at the end of 2011.

With just 40 days to go until the election, the weak growth figure was sure to take on a strong political resonance. Mitt Romney has battered President Obama for failing to foster a robust recovery and has pinned the economy’s weak jobs growth on his policies. Mr. Obama has conceded that the recovery has been anemic, but has argued that his administration put the economy on the right track after the worst recession since the Great Depression.

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The New York Times

Thursday’s report underscored that the recovery has proved insufficient to pull down the unemployment rate, which has been stuck between 8.1 percent and 8.3 percent all year.

The renewed weakness this month spurred the Federal Reserve to act to support the economy, putting in place a third major round of bond purchases designed to aid the nascent housing recovery and to encourage employers to add jobs.

Much of the downward revision to the second-quarter figures was because of the effects of the nation’s worst drought in 50 years. Farm inventories dropped in the second quarter, after falling in the first as well.

More broadly, cuts to state and local government spending have held down growth, and private firms have hesitated to invest during the poor business climate, despite the attraction of low interest rates on loans.

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The New York Times

A separate report Thursday showed the manufacturing sector, one of the brightest spots in the recovery, contracting as well. The Commerce Department said that durable goods orders, a key measure of manufacturing strength, plunged 13.2 percent in August, far more than economists had anticipated and the steepest drop since the worst of the recession in the winter of 2009.

Much of the drop was from orders for aircraft.

Still, the economic news was not all bad. The Bureau of Labor Statistics issued revised numbers for employment that raised the estimate of jobs in the economy last March by 386,000, or 0.3 percent — enough to make President Obama a net job creator over his tenure.

The report, adjusting data that will be refined once more, follows a trend of the bureau underestimating job growth when the economy is expanding and underestimating job losses when the economy is contracting.

That proved the case in the early-2000s recession following the collapse of the tech bubble, the massive recession that started in 2008 and the period of economic expansion in between.

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The New York Times

Indeed, the Great Recession proved much worse than government policy makers understood as it was happening, with the economy shedding hundreds of thousands more jobs than initially estimated.

In August, the Bureau of Labor Statistics said that it had overestimated job growth in June and July, revising down the number of jobs added in those months by more than 40,000. Thus, the bureau estimates the economy added fewer than 100,000 jobs a month through the summer months – not enough to pull down the unemployment rate, given normal expansion in the labor force.

But housing has recently proven a surprising bright spot, with sales and prices starting to climb in many regions of the country. On Thursday, the National Association of Realtors said that pending home sales retreated slightly in August after reaching a two-year peak in July. The level of pending home sales — a measure of properties under contract but not yet closed on — has risen more than 10 percent in the past year.

Many housing experts expect a sustained, slow recovery in the market. On Thursday, the average rate on a 30-year fixed mortgage fell to a record low of 3.4 percent. Low mortgage rates, driven in part by the new Federal Reserve program, are expected to drive more Americans to refinance their homes and to encourage purchases as well.